P&Q Roundtable attendees talk ramping down regulations

By |  June 9, 2017

Undoubtedly, aggregate producers face more rules and regulations than ever in 2017.

According to Forbes, a record 97,110 pages were introduced last year alone to the Federal Register, the publication that contains federal agency regulations, proposed rules, and public notices and executive orders, among other details. A new administration, however, means a new regulatory approach – one geared toward reducing regulations and controlling regulatory costs.

Aggregate producers, equipment suppliers, association representatives and others took some time earlier this year to explore the regulatory front at the Pit & Quarry Roundtable & Conference. Following are transcripts from roundtable proceedings on the topic. Two discussions were hosted simultaneously at the Scottsdale, Arizona, event – one in the center’s Turquoise Room, and the other in the Topaz Room.

TURQUOISE ROOM

CONSTANTINO: In addition to federal highway spending, the recent election could result in major changes in regard to government regulations affecting our industry, including major changes at the Environmental Protection Agency. Will the Waters of the U.S. (WOTUS) rule be rescinded? What about other regulations? How might these changes affect your business?

GOETHEL: I believe [WOTUS] will be rescinded. Scott Pruitt has been nominated to lead the EPA (U.S. Environmental Protection Agency). He was the attorney general in Oklahoma. He’s very pro business. So I’m excited to see how the EPA might migrate to a business-friendly relationship.

CADWALADER: Well, Scott Pruitt has sued the federal government something like, six times over the EPA, I think. So I don’t think he has great love for the organization.

MOORE: Getting rid of two regulations every time we pass a new regulation, [which the president has ordered], is such an oversimplification of the problem because you may have one regulation, as you often do, that has 50 subparts. Each subpart has 25 more subparts. Those reference other subparts to invoke and those subparts change, and it’s almost impossible to follow some of these regulations because they’re so complicated and so interrelated and written by people who have never been in the business and who really don’t know what they’re talking about in some cases.

For example: What bureaucrat wrote the regulation on assembling the gas can to put gas in your lawnmower? You’ve got to turn it with this hand, pull it back with this hand, hold the big can with this hand while it drips out of all of these fittings that break over time. The regulation was so much simpler and easier. You just pull off the cap, pour the gas in, hold the can with both hands safely.

The tax laws are incomprehensible, all 27,000 pages of them. I ask why should a corporation be taxed at all?

Get rid of corporate tax. Why? The profit goes to the owner. If it’s a [publicly traded] corporation, it goes to the shareholders, and there’s tax there. Why tax it twice? It’s double taxation, and it’s complicated. It’s unbelievably complicated. You are talking about subparts of subparts of subparts.

So take it one step further: Why not do away with all of the tax regulations and have one national sales tax? Rich people spend more. Anybody who spends money has to pay some tax. Do away with all those tax lawyers, accountants and all the regulations.

Simplify the regulations. Make them understandable. I’m hopeful [President Donald] Trump will at least get rid of some and maybe the people in charge of understanding it have to be able to read them and understand them.

CADWALADER: On that specific point where he’s talking about rescinding two regulations for any new regulation that he brings in: I don’t know if that’s going to come to pass or not, but I think the American people are getting behind the general sentiment of the idea, which is we can’t continue to burden our industries and our businesses with just layer upon layer upon layer [of regulations]. So, whether or not he even thinks that’s possible, the general sentiment is what people are getting behind.

The Republicans are promising to repeal Obamacare and replace it with something better. Well, provided that the something better has choice for the folks and gets the costs under control, it would be a good thing. Restructuring the tax code into something that’s logical, something that people can understand, that would be a good thing.

Whether or not there should be corporate tax: That’s kind of a broad-based thing, but I’m not sure corporations should be taxed at, say, 35 percent because, as you say, it actually goes to other people and, in reality, corporations don’t pay taxes. Their customers pay the taxes. So any tax is going to get pushed down through their products and services, so the company can make their margin. They have to. They have no choice.

So the idea in Washington is that somehow a corporation is a nameless, faceless thing. [But when Washington taxes] an individual, there’s a pushback, right? That person votes. Corporations don’t really vote. They try to influence the vote, but they don’t really vote. So that’s how it gets pushed in that direction. [I would favor] a restructuring of the tax code to make it have some sense to it, have some logic behind it.

The other thing Trump is talking about is the restructuring of trade deals. That’s an important thing. Our politicians have structured it in such a way that if you build a widget in the United States and send it to Brazil, you have a repressive tax, an import tariff to bring that widget in. But if you make the same exact widget in Brazil and you bring it to the United States, we charge them zero. So tell me how does that make sense?

Letting that kind of stuff happen is something that needs to be changed. And you can pick the country. Whether it’s Brazil or India, wherever, they have a tariff to bring a thing in there. We charge them nothing when it comes in here. It would make sense to me that if whatever restructuring they do in the trade deal area, they have a reciprocating deal. Whatever you do to me, I’m going to do to you. If you charge me 35 percent, I’m going to charge you 35 percent.

And there should be a clause or a rider in there that says these corporations in whatever country must comply with the United States’ standards for health, safety and environmental regulations. That does two things: First, it levels the playing field a bit so that United States corporations don’t have a disadvantage from countries that have zero regulations in those areas. It also helps both the workers in that country and the environmental situation worldwide.

DANNER: I feel like under the Obama administration, it was a kind of all-encompassing government. I feel like the people really didn’t have a voice. The administration just kind of did whatever it is they wanted to do. If they wanted to strong-arm [producers] via MSHA (Mine Safety & Health Administration) regulations, they did.

And there was really no input from the businesses involved. It was government-driven. I’m hoping the Trump administration at least will listen and receive our input.

I think that’s the rallying cry of America right now. People are sick of not being heard anymore, and with an entrenched government that’s not doing anything to drain the swamp. They want to see things change, and basically they just want to be heard. So, again, I’m hoping the Trump administration will change the rules, influence the rules, let us have an impact on the rules.

We all agree we need some sort of guidance and we all need to have our feet held to the fire as producers to take care of the environment, take care of our neighbors. Without that, we’re back to the Wild West era. So some sort of government is good, but we at least need a back-and-forth dialogue.

ALEXANDER: And it would appear that the new administration certainly recognizes that the government in the past administration has been an impediment to business. There’s recognition that there’s a lot of onerous regulations and requirements the government has put on our industry and business in general. And so we should see an easing up on that. But as FMI’s George Reddin has mentioned, we’ve got to also recognize, as an industry, that regulation has created barriers to entry for some producers.

More regulation actually is positive for large producers because they’re staffed up and have the resources for it, and it’s the smaller producers that have found that they want to sell because they’re tired of the government interference. That could change. I think it’s clear that the pendulum is swinging.

CONSTANTINO: To the manufacturers in the room: How would easing up on these regulations affect some of the equipment you are making for the producers, and how might there be innovations in the equipment that you couldn’t have with some of the current regulations?

VENEROSO: The regulations are extremely complex. In an ideal world, they could issue very straightforward rules that say, “follow A, B, C, D, E, F.” That’s what you want. It would be much easier. As far as our company is concerned, we’d be interested in a more clear line of communication with whoever is in charge of regulations, because it’s extremely complex.

HEFFLEY: One of the ongoing regulations is the progression of diesel particulate [rules], Tier 4. For some of our manufacturers, such as Komatsu and Wirtgen, a great deal of engineering has to go into that to meet those regulations.

And it’s been an ongoing thing and certainly there have been some good things to come from it. But there is a great deal of responsibility that’s placed on us as a distributor to learn about those new technologies and how to operate those machines, care for those machines differently and everything. There’s a lot that goes into it – from the design to the actual operation and implementation of them – that can add a lot of costs to those operations.

SMET: [In regard to] two regulations for one, I agree that’s not as simple as it sounds – from a legislative or political perspective. It’s almost impossible to actually implement that. My expectation is that they’ll just defund the agencies and make them less effective in doing their jobs, right? So less “police” on the street, so it starts watering down the actual compliance.

I’m wondering what the large producers in the room think about that. If [MSHA] is defunded, who will it go after? Will it go after the big guys and try to nail them down with violations and big fines?

WEECH: Regulations can be a benefit and can be a curse. The challenge to us as producers is [dealing with] the inconsistent enforcement of the regulations. Regulations in and of themselves in most cases are not necessarily bad, as long as they’re consistent and adopted by all parties, because then it’s an equal playing field and we can compete.

TOPAZ ROOM

TRUSSELL: There are a multitude of rules that are currently in different phases of approval that we have great concern over, not the least of which is the Waters of the U.S. (WOTUS) rule, obviously; and some of the air quality rules that we’re facing. The ozone is going to be a huge obstacle for us. The new standards have been lowered such that it would be very difficult, at best, for a new business to come in and operate in our non-attainment areas. There are a lot of things we cannot control as it pertains to precursor emissions to ozone.

So there has to be a rollback. But the question is how is that going to take place?

One of the things we deal with are major grabs of federal land. And while that’s not necessarily a rule, obviously we’re concerned with parting gifts from the [last] administration. In the case of the Grand Canyon Watershed National Monument, we’re talking 1.7 million acres that have multiple uses. Those are the kinds of things we were concerned with. How do we reverse that course? That would have a devastating effect on our industry.

MADARA: We’ve looked into WOTUS closely. From what I can tell, [the issue] is clarity of where water starts and stops. That’s what the administration is going to change. It’s going to provide more clarity on where this water starts and stops, as opposed to saying a producer is a thousand miles away but he is getting water from a protected source somewhere else.

Hopefully, [the administration] can provide a bit more clarity where this water starts and stops so we don’t have to fight that rule. That’s where I see the change coming – not so much the rule being rescinded, but just more clarity of what that rule really means.

TRUSSELL: Rick’s point is very well taken. We did a local analysis of what that very issue would mean regarding where we currently are in terms of permitting and where we would be under that rule, and it’s a devastating impact as we interpret it. So that’s an excellent point.

YANIK: Do any producers have some perspective to share on the WOTUS rule?

PARKER: Locally here it’s very important to us because, if you look around, all of our mining is in river bottoms. We don’t have a lot of hard rock sources. So it’s been something the [Arizona] association has been looking at, and it’s been something all of our companies are looking at because it will have adverse impacts tremendously on our local economy if those rules go through.

As Phoenix expands, markets move farther away. So your cost of transportation – your cost of everything – is going up significantly. I think it will be a definite game changer to Phoenix’s economy if the rules do go through. Costs will just continue to rise because of how far outside the market we have to move our pits and our quarries.

MADARA: We’ve seen a lot of producers spend a significant amount of money to conserve water and reuse water, and they’re not getting any money back for that. They’re not selling a product. They’re basically spending a lot of their money. They’re allowed to spend so much money a year, and they’re spending a lot of that money just to find ways to recover water. So I can see their cost of doing business increasing.

Hopefully there’s some clarity about where these waterways are protected. I think everyone certainly wants to protect our water, our natural resources, but at the same time they left the rule so vague and they’re taking it to an extreme area where virtually all areas are protected. It makes it very difficult for producers to find a water source they can use.

YANIK: What pressures are manufacturers feeling related to the WOTUS rule?

MADARA: Well, it’s easy to sell a product to somebody when you can say, “You’re going to make this much money if you buy this product by making your product.” But it’s hard when you have to sell a solution where there’s really not a lot of benefit on the producer’s side. It’s just money they have to spend to stay in business and to continue to operate their plant.

For us, it’s tough to sell something when there’s really, on paper, no back-end positive results financially. At the end of 2016 we saw an uptake in equipment that produced a product. But if a piece of equipment was not going to help the producer make any money 10 years ago, that wasn’t even on the table. Now, that’s being looked at very closely just to allow them to be able to operate.

This just increases their day-to-day operations and expenses to be able to keep up with everything. So the tighter they make those regulations and rules, the harder it is for the producer to produce a product.

CRAVEN: We’ve noticed a shift globally, really. Ten years ago, maybe one in 10 projects we sold had some element of water treatment or recycling equipment on it. Now, it’s nine of 10 without selling.

Like Rick said, it’s a different sales argument you’re making. It’s an argument around making regulations and dealing with problems with access; the volumes of the water required in the first place; and dealing with the safety issue of the maintenance and demolishment of large settling ponds on sites and the health and safety risks proved by them.

Really, that’s a completely different argument from every other product in our portfolio that is based on making a better product.

The thickness on the filter presses takes a longer time to sell to customers because there isn’t a business case for it. It’s a regulatory decision, or it’s a safety decision somebody makes there. It depends on the value that a specific customer places on those two elements, or the pressure they’re under in the organization or from a regulatory authority that makes those requirements more permanent requirements.

Increasingly, we’re doing a lot of work in construction/demolition waste recycling. By their nature, in urban environments they can be maybe 200 or 300 yd. away from where people live. So in that instance the full closed-circuit water recycling and recovery systems are absolutely essential because no permanent authority is going to allow you to put large settling ponds 200 or 300 yd. from where local children might go over the weekends. It’s a difficult situation.

We’ve grown up in this area in the United Kingdom, which is a very different market than the U.S. in that it’s a very densely populated market on a small island relative to the U.S. The U.S. has a lot more space and a lot less people per square mile than the UK has, so it isn’t faced with the same pressures that prove the proliferation of this equipment in the UK over the last 10 to 15 years.

TRUSSELL: Here in Maricopa County (Arizona), for example, there’s a real base case for sustainability. Obviously, we want to maintain our license and operate in proximity to ours neighbors. The California Geological Survey did a study, and they looked at 30 municipalities. And but for one, all of them were ill-equipped for what was coming in their general plan. They weren’t thinking about how they were going to provide materials for their lane miles or their commercial laborers. And as far as their residential units, they did not have near what they needed permitted.

One of the issues I see – and that I hope this administration will certainly recognize and run with – is the fact that in order to realize what we want to see in our general planning, we need to make sure we have access to those materials to build. Strategic planning for aggregates is paramount.

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